Government to discuss cutting tax relief for wealthy pension savers

Wealthy earners may see the higher-rate tax relief on pensions cut significantly in next month's Budget, says Treasury chief secretary Danny Alexander.

The Liberal Democrat minister indicated that proposals are being put forward to the Coalition Government to make the tax-relief system 'fairer' and could see the tax relief for high earners halved from 40 per cent to 20 per cent. He predicted that reducing the higher tax break could save the Exchequer more than £7 billion.

Talking to the Daily Telegraph, Danny Alexander said: "If you look at the amount of money that we spend on pensions' tax relief, which is very significant, the majority of that money goes to paying tax relief at the higher rate.

"It's very important that in these difficult times that we are asking those with the broadest shoulders to share the greatest share of the burden."

Alexander also argued that that workers on the minimum wage who earn up to £12,500 a year should pay no income tax at all, saying: "When it comes to people on low and middle incomes, I am a tax-cutter by instinct."

Under current legislation, the Government tops up every 60p saved into a pension by a higher-rate tax payer by 40p, making it up to a £1. The Liberal Democrats want to see this top up halved to 20p -in line with the basic rate of income tax.

However, the decision is likely to face criticism from experts who will argue that it will deter people from saving and place more pressure on the pension system.

The Liberal Democrats are now expected to call for cuts in tax relief at their spring conference next month, adding fire to debates within the Government that is also said to be discussing the 50p rate of income tax and the introduction of a 'mansion tax' on high-value property.